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Which employees transfer on a service provision change?

As a service provider, do you know what would happen if you lost the work? As the client, do you know what would happen if you took the work in-house or appointed a new service provider?

generic employmentA decision to outsource, insource, or move work from one contractor to a another may trigger a TUPE transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Employees working on the contract may automatically follow the work and become employed by the new company undertaking the work moving forward.

The question as to which employees would actually TUPE transfer can be a complex issue. Recent case law has emphasised the need to really think about it regardless of how simple the situation may seem. Only those employees assigned to an organised grouping whose principal purpose is the carrying out of the work would transfer and the recent case of London Borough of Hillingdon v Gormanley and Others demonstrates how easy it is to go wrong in deciding who those employees are.

In Gormanley, the Employment Appeal Tribunal highlighted that the fact that a family painting and decorating business had only one client did not automatically mean that all employees would transfer to the client when the client decided to move that work in-house. It may well be the case that there is only one contract at the time that the contract moves, but that is by no means indicative of a transfer of all employees, and it also may just be pure chance at that time as was the case here (prior to 2008 the business had worked for other clients but the business had failed to secure new work since).

The case emphasises that consideration has to be given to the organisational structure of the business and to what is and could be required of each employee, when deciding whether or not the employee is assigned to an organised grouping whose principal purpose is the carrying out of the work on behalf of the client in question.

For example, would some employees be required to move to work solely for a second client if it came along? Or would they share their time? What has happened in the past? And are some employees undertaking duties unrelated to the client in question even if it appears that they are dedicated to just one client (such as a manager who may undertake tasks such as running the business as a whole or seeking new clients)?

The question of whether or not TUPE applies is complex and can require an analysis of the facts, but it can have wide ranging repercussions for employees and for businesses. Not only does TUPE trigger certain legal protections and procedural requirements, but from an operations perspective when work is moved it can sometimes lead to a redundancy situation with associated redundancy costs for one business. Or, if there is a dispute as to whether TUPE applies then employees can be left in ‘no man’s land’ which may lead to costly legal claims in the employment tribunal.

If you are considering outsourcing, insourcing, or moving to a new contractor, or if you are the contracting service provider, then we recommend that you seek legal advice. It is never too early to think about the issue and to plan and prepare.

Other blogs of interest:

TUPE or not TUPE? How Auto-Enrolment could affect your obligations on transfer

TUPE and Collective Agreements: CJEU prefer ‘static’ approach

How to deal with a TUPE transfer

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further